Pattie Lovett-Reid

Chief Financial Commentator, CTV

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The Bank of Canada did exactly what we expected it to do - move rates higher by 25 basis points to 0.50 per cent.

Wednesday’s move is the first step in the most significant tightening cycle in decades all in an effort to slow down red-hot inflation.

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At the same time it will be a balancing act for the Bank of Canada to ensure inflation is reined in and the economy isn't cooled too aggressively.

The next rate announcement is April 13, so the prudent financial household will be ready should rates need to rise further.

So what does this mean for you?
 

LOANS AND MORTGAGES

For those who have locked into fixed mortgages there is no need to panic as your rates won't change so you can breathe a little easier. However, rising rates will make housing more expensive for those in variable rate mortgages or loans.

Now is the time to crunch the numbers to see if locking in makes sense, especially if peace of mind is of concern. According to RATESDOTCA, there has been a surge of pre-approval requests to lock in rates and even a slight uptick in 10-year term inquiries. The prospect of multiple rate hikes over the next couple of years, has some clients willing to pay a premium for that longer-term certainty.

If you are thinking of buying a car or doing a home renovation, consider locking in funding before it becomes more costly. 
 

SAVERS

For those who have been sitting in savings accounts patiently waiting for rates to go higher - they will likely be disappointed - again. While borrowing costs will rise higher, interest payments for depositors will lag. After taxes and inflation, you will likely continue to see a slight erosion. Given the geopolitical climate, strong market performance and high level of savings, if you haven't already done so now is the time to ensure your savings and investments are aligned to your risk tolerance, time horizon and asset allocation. Re-balance your portfolio to lock in gains.
 

EMPLOYMENT

Clearly the economy and job market have proven to be more resilient than anyone originally believed; however, now is not the time to become complacent. Without meaningful business investment in Canada further job losses could be on the horizon. No one ever really worries about their debt level when they have a job but things can spiral out of control should the situation change. If you haven't, now is the time to build that emergency fund of three to six months of living expenses and secure a line of credit strictly for emergency use. 

The financial landscape has changed, the economy has strengthened, has your personal balance sheet? If not, hit the pause button on discretionary spending on major purchases you know you can't afford. Inflation will come down as rates increase, supply chains unsnarl and demand becomes more balanced but it is going to take time. 

Your household doesn't have to single-handedly prop up the economy. For now, it might make sense to proceed with caution on how your are spending your money.